In the long run analysts expect Harvey to have long term impact on U.S. crude’s value chain.
With Hurricane Harvey leaving a trail of destruction, knocking out refineries and crude production facilities, along the U.S. Gulf Coast, oil markets around the world opened lower on Monday. As a result, gas prices hit their two-year highs.
Brent futures rose thanks to pipeline blockades in Libya. U.S. crude futures eased as U.S. refinery shutdowns is likely to reduce demand for U.S. crude.
Harvey is the most powerful hurricane to hit Texas in more than 50 years. It’s devastation has killed at least two people and has caused large-scale flooding forcing the closures of several refineries as well as the Houston port.
On Monday the U.S. National Hurricane Center (NHC) disclosed that although Harvey is slated to move away from the coast, it is expected to linger close to the shore through Tuesday, and that floods are likely to spread from Texas eastward to Louisiana.
Texas has a refining capacity of 5.6 million barrels per day (bpd), while Louisiana’s bpd is 3.3 million. As a result of Harvey more than 2 million bpd have gone offline and as a result spot prices for U.S. gasoline futures has surged by 7% to $1.7799 per gallon, its highest since July 2015.
“There may be meaningful and long-term damage to Texas’ refining capacity,” said Jeffrey Halley, an analyst at OANDA.
U.S. West Texas Intermediate (WTI) futures were at $47.70 a barrel, down 17 cents, from their last settlement.
“It may well be that the market feels the choke point in petroleum’s value chain is not (crude) production, but refined products,” said Halley.
Although the full extent of Harvey’s damage isn’t clear, analysts have predicted its impact will be felt globally and will affect energy markets for weeks to come.